# Petition for Writ of Certiorari — Kayser-Roth Corp. v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1991
- **Citation:** 498 U.S. 1084

## Text

OCTOBER TERM, 1990

KAYSER-ROTH CORPORATION, PETITIONER

Vv.

UNITED STATES OF AMERICA, RESPONDENT

Petition for a Writ of Certiorari to the
United States Court of Appeals
~- fer the First Circuit

PETITION FOR A WRIT OF CERTIORARI

ANDREW J. PINCUS
Counsel of Record
KATHERINE J. HENRY
Mayer, Brown & Platt
2000 Pennsylvania Ave., N.W.
Washington, D.C. 20006
(202) 778-0628

DEMING E. SHERMAN
Edwards & Angell
2700 Hospital Trust Tower
Providence, RI 02903
(401) 274-9200

Counsel for Petitioner
Kayser-Roth Corporation

WILSON - Erzs PRINTING Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

Section 107(a) (2) of the Comprehensive Environmen-
tal Response, Compensation and Liability Act, 42 U.S.C.
§ 9607(a) (2), provides that. « person who “at the time
of disposal of any hazardous substance owned or oper-
ated” the facility at which the hazardous substance was
disposed is liable for, among other things, the costs of
cleanup in the event the hazardous substance is released
into the environment.

The question presented is whether Congress intended
to hold a parent corporation directly liable as an “opera-
t{or]” of a facility owned and operated by one of its
subsidiaries when the corporate veil between the parent
and its subsidiary may not be pierced.

(i)

ii

RULE 29.1 STATEMENT

Petitioner Kayser-Roth Corporation’s parent corpora-
tion is Wickes Companies, Inc., whose parent corporation
is WCI Holdings Corporation. The parent of the latter
corporation is WCI Holdings II Corporation. Kayser-
Roth Corporation has no subsidiaries other than wholly-
owned subsidiaries.

QUESTION PRESENTED
RULE 29.1 STATEMENT
OPINIONS BELOW
JURISDICTION

TABLE OF CONTENTS

STATUTORY PROVISIONS INVOLVED ................

STATEMENT
A. Statutory Background
B. The Stamina Millis Facility ..

C. The Proceedings Below

REASONS FOR GRANTING THE PETITION ..........
I. A CORPORATE PARENT MAY BE HELD

II.

CONCLUSION .....

DIRECTLY LIABLE AS THE “OPERA-
T[OR]” OF A FACILITY OWNED AND
OPERATED BY ONE OF ITS SUBSIDIAR-
IES ONLY IF THE CORPORATE VEIL BE-
TWEEN PARENT AND SUBSIDIARY MAY
BE PIERCED

THE FIRST CIRCUIT’S INTERPRETATION
OF CERCLA SQUARELY CONFLICTS WITH
THE FIFTH CIRCUIT’S DECISION IN JOS-
LYN MANUFACTURING CORP.

THE GROUNDS ON WHICH A PARENT
CORPORATION MAY BE HELD LIABLE
UNDER CERCLA FOR ACTS OF ITS SUB-
SIDIARY IS A QUESTION CF GREAT PRAC-
TICAL IMPORTANCE ooo. cceeeeneeceeceeenee

(iii)

a» © ©

~I

15

iv

TABLE OF AUTHORITIES
Cases: ~ Rage

In re Acushnet River & New Bedford Harbor Pro-
...ceeilings, 675. F..Supp..22 (DMMass\1087)....... 110
Alterio v. Biltmore Constr. Corp., 8377 A.2d 237
_£R.L_1977) 2.15
Bangor Punta Operations, Inc. Vv. Bangor &
Aroostook. Railroad. Co.,.417.U.S. 703 ){T9%4)_.. 9
Burnet v. Clark, 287 U.S. 410 (1932) 9
Joslyn..Maniefactiring: Cos vVI'T.LIdemesi&’Co.,

898 F.2d 80 (5th Cir. 1990), petitions for cert.

_ pending, 59 U.S.L.W. 3058 (U.S. July124)128a0)

(No. 89-1978) & 59 U.S.L.W. 3077 (U.S. Aug.
~7;1990)° (No: 90-69) passim
Joslyn Corp. V. T.L. James*& Coy 696° F.-Supp!'222

(W.D. La. 1988), aff’d,. 898 F.2d 80 (5th Cir.
1990), petitions for cert. peiiding; 59°U.S.L-W.

8058 (U.S. July.24, 1990). (No. 89-1973) .& 59

U.S.L:W: 8077 (U.S. Aug: '7,°1990) (No. 90-

‘8 ). 10
Midlentic National=Bank' ViNew Jersey) Dep't of

-\Buvironmental Protection] 474 US) 494 (1986) .. 12
Miller: Vi Dizon? Indiustriex Corp. TA3 442d (697

/{R.L2986). 15
New. Colonial kee. Co. vi Helvering, 292 TES! A385
(1984) 9
New-York _v. Shore. Realty. Corp.,.759. F.2d. 1082
_f2d Cir. 1985). 14
Pennsylvania v— Union-Gas"Co.; 109-S.-Ct_2278
(1989) 3, 18

Riverside Market’ Development “Corp: v. Interna-
vtionall Building “Psoddets, "No. 13885317, 151890
TULS.IDist[UGEXUS 6875° (E.D.1 La.oMay %23,

17990). 17

Russelio vo United States; 464 VU S.4A6 7983) __..... 12
United Savings Ass’n V. Timbers of inwodd Forest

Associates, Ltd., 484 U.S. 865 (1988) ................ 13-14

United. States v. Fleet. Factors_Corp.A90L' Hi2d
1550 (11th Cir. 1990), petition for cert. pend-
ing, 59 U.S.L.W. 3882° (U.S. Oct. 30, 1990) (No.
GID civ ciccsecenaicnveibccecseniibaionns 15

Vv

TABLE OF AUTHORITIES—Continued
Page
United States v. Monsanto, 109 S. Ct. 2657
(1989) 12
United States v. Naftaiin, 441 U.S. 768 (1979)... 12-18
United States v. Northeastern Pharmaceutical &
Chemical Co., 810 F.2d 726 (8th Cir. 1986),

cert. denied, 484 U.S. 848 (1987) 14
Statutes and Regulations:
12 U.S.C. § 1815 (e) (1) (A) 11
12 U.S.C. § 1841 (a) (2) (C) 11
28 U.S.C. § 1254(1) 1
Empioyee Retirement Income Security Act,
29 U.S.C. § 1801 et seq. 11
29 U.S.C. § 1801 (b) (1) 11
Comprehensive Environmental Response, Com-
pensation and Liability Act,
42U.S.C. § 9601 et seg. 8
42 U.S.C. § 9601 (9) 9
42 U.S.C. § 9601 (20) (A) 2
42 U.S.C. § 9601 (20) (A) (ii) ..... ... 98,18
42 U.S.C. § 9601 (20) (A) (iii)... 12, 18
42 U.S.C. § 9601 (28), (24) 8
42 U.S.C. § 9601 (82) 3
ee 3
42 U.S.C. § 9605 (a) (8) . 2 ER RS 18
. 8
42 U.S.C. § 9607 (a) 2,5
42 U.S.C. § 9607 (a) (2) 8
42 U.S.C. § 9607 (a) (8) 14
40 CF. 6 eee App. Bt 18
Miscellaneous:
P. Blumberg, The Law of Corporate Groups
aes A bch dhenicicnaancneniecnborsajienserecticanantons 18
54 Fed. Reg. 33846 (1989) 18
1 Fletcher Cyclopedia of the Law of Private Cor-
porations (1990) 9,10

Office of Technology Assessment, U.S. Congress,
Coming Clean: Superfund Problems Can Be
Solved (Oct. 1989) 18

a ~ : Ft. z Se ten ae A AO ys
s 3 f r i eas ee fats ian’ Powe oe aes SiG

wl creat hi PEG FESBE 2
-. a a « a) i
% P ‘ “4 SS *“y PRC
é CS) Re
i . : \ Bee
. 4 Sisk rs ‘ ett
cy ; ‘ definition of “operator” ap-
plicable here makes clear that Congress did not authorize
any “short-cut” for imposing liability on parent corpora-
tions; the applicable test is the traditional veil-piercing
standard.

Moreover, the First Circuit’s decision conflicts with the
Fifth Circuit’s recent decision in Joslyn Manufacturing

* The government argued in the district court that Kayser-Roth
should be held liable as the successor to the dissolved Stamina
Mills, Inc., but the district court declined to address that “thorny
issue.” App., infra, 2la. That question accordingly is not before
this Court.

8

Co. v. T.L. James & Co., 898. F.2d 80 (5th Cir. 1990),
petitions for cert. pending, 59 U.S.L.W. 3058 (U.S. July
24, 1990) (No. 89-1973) & 59 U.S.L.W. 3077 (U.S. Aug.
7, 1990) (No. 90-69), which squarely rejects the control
test adopted by the First Circuit (see 893 F.2d at 83)."
In addition, because of the vast scope of the CERCLA
program, and the uncertainty and disruption of settled
expectations in the business community that will result
from the First Circuit’s decision, the question presented
in this case is one of tremendous practical importance.
Review by this Court is therefore clearly warranted.

I. A. CORPORATE PARENT MAY BE HELD DI-
RECTLY LIABLE AS THE “OPERAT([OR]” OF A
FACILITY OWNED AND OPERATED: BY ONE OF
ITS SUBSIDIARIES ONLY IF THE CORPORATE
VEIL BETWEEN PARENT AND SUBSIDIARY
MAY BE PIERCED.

1. CERCLA: provides that any person who “owned”
or “operated” a facility when hazardous substances were
disposed of at the facility is liable for, among other
things, the costs of cleanup or removal in the event. the
hazardous substances are released into the environment.
42 U.S.C. § 9607(a) (2); see also 42 U.S.C. § 9601(23),
24. The statute defines “owner or operator” as follows:

in the case of an onshore facility or an oftshore
facility, any person owning or operating such facil-
ity. * * * Such term does not include a person, who,
without. participating. in the management of a vessel
or facility, holds indicia of ownership primarily to
protect his security interest in the vessel or facility.

42 U.S.C. § 9601 (20) (A) (ii).
The statutory definition leaves no doubt that the per-

son or entity that directly holds title to a “facility”’—
essentially a site on which any hazardous substance is

7™This Court on October 1, 1990, issued an order inviting the
Solicitor General to express the views of the United States in
Joslyn. See 111 S. Ct. 34.

9

located (see 42 U.S.C. § 9601(9))—and the person or
entity that directly operates the facility are subject to
liability. For example, assume the owner of an empty
building leases that building to another who operates
an auto repair shop on the premises. Both individuals
would be subject to liability under CERCLA in the event
hazardous substances were deposited on the site as a
result of the operation of the repair shop.

There is no claim here that Kayser-Roth itself held
title to the Stamina Mills facility. All indicia of owner-
ship were held by Stamina Mills, a different corporate
entity. Similarly, there is no claim that employees of
Kayser-Roth performed operational functions at the fa-
cility. All of the persons who worked at the facility were
employees of Stamina Mills and responsibility for day-to-
day operations was in the hands of Stamina Mills em-
ployees. See page 4, supra. Rather, the argument here
is that Kayser-Roth, by closely supervising the actions of
_ its subsidiary, controlled the operations of the facility.

The general rule, of course, is that “a corporation and
its stockholders are deemed separate entities.” New Colo-
nial Ice Co. v. Helvering, 292 U.S. 4385, 442 (1934); see
also Burnet v. Clark, 287 U.S. 410, 415 (1982); 1
Fletcher Cyclopedia of the Law of Private Corporations
§ 25 (1990). For that reason, the actions and liabilities
of a corporation generally may not be attributed to its
shareholders. 1 Fletcher Cyclopedia of the Law of Pri-
vate Corporations § 25. Under this general rule, Kayser-
Roth could not be held liable for the acts of Stamina Mills
and its employees.

There are exceptions to this principle of limited liabil-
ity, however. “[T]he corporate form may be disregarded
in the interests of justice where it is used to defeat an
overriding public policy.” Bangor Punta Operations, Inc.
v. Bangor & Aroostook Railroad Co., 417 U.S. 703, 713
(1974). The law has long recognized that a parent’s
involvement in its subsidiary’s activities may subject the

10

parent to liability for the subsidiary’s actions. The stand-
ards for “piercing the corporate veil” are designed to
identify those situations in which the line between parent
and subsidiary has become so blurred that the two com-
panies should be treated as one. See generally 1 Fletcher
Cyclopedia of the Law of Private Corporations § 43.
When those standards are satisfied, the subsidiary’s ac-
tions and liabilities may be imputed to the parent.

Indeed, courts have held that this is a permissible basis
for imputing a subsidiary’s CERCLA liability to its
parent corporation, although there is some disagreement
as to the appropriate veil-piercing standard. See, ¢.g.,
Joslyn Corp. Vv. T.L. James & Co., 696 F. Supp. 222, 226-
227, 232-233 (W.D. La. 1988), aff’d, 893 F.2d 80 (5th
Cir. 1990), petitions for cert. pending, 59 U.S.L.W. 3058
(U.S. July 24, 1990) (No. 89-1973) & 59 U.S.L.W. 3077
(U.S. Aug. 7, 1990) (No. 90-69) (holding veil piercing
improper on the facts of the case under both federal
common law and state law standard); Jn re Acushnet
River & New Bedford Harbor Proceedings, 675 F. Supp.
22 (D. Mass. 1987) (applying federal common law stand-
ard in concluding that corporate veil should not he
pierced).

The court of appeals did not hold Kayser-Roth liable
on a veil-piercing theory.* The court found it unneces-
sary to address that question (see App., infra, 8a n.11),
concluding instead that Kayser-Roth was “directly liable”
(id. at 3a) as “operator” of the Stamina Mills facility
because of its assertedly close relationship with its sub-
sidiary. As we have discussed, however, any involvement
by Kayser-Roth occurred in the course of routine over-
sight of the activities of its subsidiary. The court’s lin-
guistic sleight-of-hand cannot disguise what the court was
really doing: disregarding corporate formalities and

® The district court did find liability proper on this ground, but
the court of appeals did not address Kayser-Roth’s challenges to
that determination. See page 6 note 5, supra.

11

treating the two corporations as one. The question in
this case, therefore, is whether Congress intended to sup-
plement the traditional veil-piercing exception to the
principle of limited liability by creating an additional
ground for the imposition of liability on corporate share-
holders.

Congress may of course choose to expand a parent cor-
poration’s liability for its subsidiary’s acts by, for exam-
ple, imposing liability whenever a parent corporation
“controls” its subsidiary, without regard to whether lia-
bility would obtain under the applicable standard for
piercing the corporate veil. For example, a financial in-
stitution’s liability under certain federal banking laws
extends to all “commonly controlled” institutions. See
12 U.S.C. § 1815(e) (1) (A). The statutory definition of
“control” includes holding 25% of a company’s voting
stock, controlling the election of a majority of the board
of directors, or “directly or indirectly exercis[ing] a
controlling influence over the management or policies of
the bank or company.” 12 U.S.C. § 1841(a) (2) (C).
Similarly, the Employee Retirement Income Security Act,
29 U.S.C. § 1801 et seg., extends an individual employer’s
liability under the statute to all businesses under “com-
mon control” (29 U.S.C. § 1801(b)(1)), with control
defined as ownership of 80% or more of a company’s
stock. A wholly-owned subsidiary’s liability would there-
fore automatically be imputed to its parent corporation.

Congress’s failure to include a similar express “con-
trol” standard in the relevant portion of CERCLA weighs
strongly against expanding the liability of corporate
shareholders. As the Fifth Cireuit observed with respect
to this precise issue, “[t]o [hold parents directly liable
under CERCLA for their subsidiaries’ activities] would
dramatically alter traditional concepts of corporation
law. The ‘normal rule of statutory construction is that
if Congress intends for legislation to change the inter-
pretation of a judicially created concept, it makes that

12

intent specific.’ Any bold rewriting of corvoration law
in this area is best left to Congress.” Joslyn Manufac-
turing Co., 893 F.2d at 82-88 (quoting Midlantic Na-
tional Bank v. New Jersey Dep’t of Environmental Pro-
tection, 474 U.S. 494, 501 (1986)). The Fifth Circuit
concluded that “[wlithovt an express Congressional di-
rective to the contrary, common-law principles of corpora-
tion law, such as limited liability, govern our court’s
analysis.” 893 F.2d at 83.

More than Congress’s silence establishes that Congress
did not intend to create a new principle of shareholder
liability here, however. Congress included in another part
of CERCLA the “control” test that the court of appeals
read into the definition of “operator” and applied to
Kayser-Roth. In the very next subsection of the definition
of “owner or operator,” Congress specially defined that
term with respect to facilities conveyed to state or local
governments by bankruptcy, tax delinquency or abandon-
ment; the definition reads: “any person who owned, oper-
ated, or otherwise controlled activities at such facility
immediately” before its conveyance. 42 U.S.C. § 9601
(20) (A) (iii) (emphasis added).

“ , 5138 A.2d
597, 604 (R.I. 1986) (to pierce the corporate veil “where
a parent-subsidiary relationship is involved, it must be
demonstrated that the parent dominated the finances, pol-
icies, and practices of the subsidiary”). Indeed, courts
confronting this choice of law issue have observed that
the distinction between state law and a federal rule of
decision is of little practical difference. In re Acushnet
River, 675 F. Supp. at 33.

«

Liability Without Piercing the Corporate Veil

A parent corporation that controls the management
and operations of its wholly owned subsidiary can be held
responsible for its subsidiary’s CERCLA liability with-
out piercing the corporate veil. E.g., idaho v. Bunker
Hill Co., 635 F. Supp. 665, 671-72 (D. Idaho 1986).
Cf. New York v. Shore Realty Corp., 759 F.2d 1032,
1052 (2d Cir. 1985) (individual stockholder liable as
operator) ; United States v. Northeastern Phramaceutical
& Chem. Co., 810 F.2d 726, 744 (8th Cir. 1986) (same).
But see Joslyn Corp. v. TL. James & Co., 696 F. Supp.
222, 224-25 (W.D. La. 1988) {parent corporation cannot
be held liable under CERCLA unless corporate veil is
pierced). While courts have reached this conclusion by
finding that the parent corporation was a de facto oper-
ator of the subsidiary, they have used two slightly dif-
ferent approaches.

One line of cases holds that a stockholder who manages
the corporation may incur CERCLA operator liability.
Eg., Shore Realty, 759 F.2d at 1052; United States v.
Northeastern Pharmaceutical and Chemical Co., 579 F.

_ a alata

18a

Supp. 823, 848 (W.D. Mo. 1984), aff'd, 810 F.2d 726 (8th
Cir. 1986). These cases note that the definition of opera-
tor or owner excludes “a person, who without participat-
ing in the management of a.. . facility, holds indicia of
ownership primarily to protect his securing interest in
the . . . facility.” 42 U.S.C. § 9601(20(A). Reasoning
that this exception implies that a person who holds indicia
of a corporation’s ownership and who participates in its
management can be an owner or operator, the courts
have concluded that stockholders participating in man-
agement can be liable. Shore Realty, 759 F.2d at 1052;
Northeastern Pharmaceutical, 579 F. Supp. at 848.

Other cases support a second theory. A stockholder,
parent corporation, or any person associated with a facil-
ity whether he or she has any ownership interest or not,
may be held liable if that person (including a corporate
entity) controls the management and operation of the
polluting corporation. This approach focuses primarily
on control.

Federal common law is emerging to determine whether
a parent corporation, individual stockholder, or sister
subsidiary for that matter, may be held directly liable as
an operator. See Northeastern Pharmaceutical, 810 F.2d
at 743-44 (individual stockholder); Shore Realty, 759
F.2d at 1052 (individual stockholder) ; Vermont v. Staco,
Inc., 684 F. Supp. 822, 831 (D. Vt. 1988) (sister subsid-
iary); Bunker Hill, 635 F. Supp. at 672 (parent cor-
poration). To be held directly liable as an operator,
courts have considered a number of factors including:
whether the person or corporation had the capacity to
discover in a timely fashion the release or threat of re-
lease of hazardous substances; whether the person or
corporation had the power to direct the mechanisms caus-
ing the release; and whether the person or corporation
had the capacity to prevent and abate damages. See
Bunker Hill, 635 F. Supp. at 671-72.

19a

THEORIES OF LIABILITY

Stamina Mills is not a party to this action although it
is clearly an owner and operator of a facility that re-
leased a hazardous substance into the environment. Cf.
Levin Metals Corp. v. Parr-Richmond Terminal Co., 817
F.2d 1448 (9th Cir. 1987) (affirming dismissal of
CERCLA action brought against dissolved corporation).
The United States, however, has proceeded against
Stamina Mills’ former parent corporation, Kayser-Roth.
The Government argues no less than six different theories
of liability.

First, the Government contends that Kayser-Roth, be-
cause of its control over Stamina Mills, was actually an
operator of the site at the time of release. Second, the
Government suggests that Crown Mfg. was an operator
of the Stamina Mills site and that Kayser-Roth has as-
sumed all ‘of Crown Mfg.’s liabilities. Third, the Gov-
ernment contends that Kayser-Roth succeeded to the lia-
bilities of Stamina Mills by continuing its operations.
Fourth, the Government argues that Kayser-Roth im-
plicitly and expressly assumed the liabilities of Stamina
Mills. Fifth, the Government suggests that the corporate
veil of Stamina Mills be pierced to find Kayser-Roth re-
sponsible for Stamina Mills’ obligations. Finally, the
Government contends that the same theory is available
to hold Crown Mfg. liable for Stamina Mills’ violations,
and that Kayser-Roth is ultimately responsible because it
assumed the liabilities of Crown Mfg.

Kayser-Roth denies that it should be held liable for
the acts of Stamina Mills. Defendant avers that it and
its subsidiary, Crown Mfg., did not own or operate the
Stamina Mills site within the scope of the statute. With
respect to Kayser-Roth’s assumption of Stamina Mills’
liabilities upem dissolution, Kayser-Roth posits that the
General Lawe ef Rhode Island, Section 7-1.1-98, which
provides that suits against dissolved corporations must be

20a

brought within two years of the corporation’s demise,
protects it against a suit brought more than ten years
after Stamina Mills’ dissolution.

Moreover, Defendant rejects the theory that the veil
of Stamina Mills ought to be pierced to pursue the real
culprit. Defendant also contends that Amperex and other
hazardous waste sites in the area were the actual sources
of TCE contamination in the Forestdale wells.

ISSUES

The parties have stipulated to a number of materiai
facts. Defendant has admitted that the 1969 spill of TCE
occurred and that this constitutes a release. Further-
more, Defendant also admits that TCE is a hazardous
material and that Stamina Mills qualifies as a facility
under CERCLA. Finally, the parties stipulate as to cer-
tain response costs, although the division between on-site
and off-site costs is disputed.

The parties disagree over two major issues. The first
is whether Kayser-Roth can be held responsible for
Stamina Mills’ actions. The second involves causation:
Defendant asserts that even if it is liable for Stamina
Mills’ release, the 1969 spill did not contaminate the resi-
dential wells. Rather, Defendant argues that other
sources, including a company known as Amperex, are the
actual polluters of the Forestdale wells and therefore
Stamina Mills’ release did not result in off-site response
costs. Each issue will be addressed in turn.

DISCUSSION

Parent Liability: Parent as Operator
Ordinarily, a parent corporation cannot be deemed an
operator based solely upon its status as a shareholder.
The fact that the subsidiary was a member of the classes
of persons potentially liable under CERCLA and that the ©

parent had a substantial ownership interest in the sub-
sidiary is insufficient to establish that the parent was an

21a

operator for CERCLA’s purposes. Cf. Bunker Hill, 635
F. Supp. at 672. The parent corporation’s control over
the subsidiary’s management and operations is an essen-
tial element of proving operator liability on the parent’s
part. See id. Cf. Shore Realty, 759 F.2d at 1052; North-
eastern Pharmaceuticai, 810 F.2d at 744.

Kayser-Roth’s liability as an operator turns on the
issue of control. It is uncontroverted that Stamina Mills
was within the class of those potentially liable under
CERCLA. Similarly, it is undisputed that Kayser-Roth,
as sole swner and shareholder of Stamina Mills, had a
substantial financial and ownership interest in Stamina
Mills. The question becomes whether Kayser-Roth exer-
cised control over Stamina Mills management and opera-
tions suffiicent to find that Kayser-Roth was a de facto

operator.

The evidence establishes that Kayser-Roth was indeed
an operator for purposes of CERCLA.* Kayser-Roth
exercised pervasive control over Stamina Mills through,
among other things: 1) its total monetary control in-
cluding collection of accounts payable; 2) its restrictions
on Stamina Mills’ financial budget; 3) its directive that
subsidiary-governmental contact, including environmental
matters, be funneled directly through Kayser-Roth; 4)
its requirement that Stamina Mills’ leasing, buying or
selling of real estate first be approved by Kayser-Roth;

4 Because the Court finds Kayser-Rcth responsible for any
CERCLA liability of Stamina Mills on an operator theory and, as
discussed later, a “piercing” theory, it need not address the thorny
issue of whether Kayser-Roth, or Crown Mfg. for that matter,
assumed, expressly or implicitly, the CERCLA liability of Stamina
Mills at the time of its dissolution. Having dissolved prior to the
statute’s enactment in 1980, Stamina Mills’ potential CERCLA lia-
bility was, of course, unknown at the time. Cf. Great Am. Ins. Co.
v. Byrd & Watkins Constr., Inc., 630 F.2d 460 (6th Cir. 1980)
(upon corporation’s dissolution, shareholders pledged to assume all
liability, known or unknown, of corporation).

22a

5) its policy that Kayser-Roth approve any capital trans-
fer or expenditures greater than $5,000; and finally, 6)
its placement of Kayser-Roth personne] in almost all
Stamina Mills’ director and officer positions, as a means
of totally ensuring that Kayser-Roth corporate policy
was exactly implemented and precisely carried out.
These are oily examples of Kayser-Roth’s practical total
control over Stamina Mills’ operations.

Illustrative of Kayser-Roth’s control are its actions
with regard to environmental matters affecting Stamina
Mills. Kayser-Roth had the power to control the release
or threat of release of TCE, had the power to direct the
mechanisms causing the release, and had the ultimate
ability to prevent and abate damage. Kayser-Roth knew
that Stamina Mills employed a scouring system that used
TCE; indeed, Kayser-Roth approved the installation of
that system after mandating that a cost-benefit study be
made by Stamina Mills. Kayser-Roth not only had the
capacity to determine the use of TCE but also was able
to direct Stamina Mills on how the TCE should have
been handled.* There are other examples of Kayser-
Roth’s participation in Stamina Mills’ environmental
decision-making. Evidence was introduced that Kayser-
Roth issued a directive to its subsidiaries, including
Stamina Mills, requiring that Kayser-Roth’s Legal De-
partment be notified of any governmental agency or
court contact regarding environmental matters. Further-
more, when Stamina Mills was sued in 1974 by the
United States for an illegal waste water discharge into
the Branch River, the final decision on settlement was
made by Kayser-Roth’s directors.

Although not singularly determinative on the issue of
operator liability, these factors along with Kayser-Roth’s
other acts of pervasive control over Stamina Mills, war-

5 Actual knowledge of the release is not required for CERCLA
liability; CERCLA is a strict liability scheme. O’Neil v. Picillo,
No. 88-1551, slip op. at 16 n.9 (1st Cir. Aug. 21, 1989).

28a

rant a finding that Kayser-Roth was an “operator” for
CERCLA purposes within the provisions of 42 U.S.C.
§ 9607 (a).

Parent Liability: Piercing the Corporate Veil

CERCLA liability based upon piercing the corporate
veil is a species of owner, rather than operator, liability.
While an owner may be, in most cases, an operator, the
converse is not necessarily true. Imputing CERCLA
liability upon a parent corporation by piercing the cor-
porate veil is, in essence, concluding that the parent is
an owner for CERCLA’s purposes. “ “The effect of pierc-
ing a corporate veil is to hold the owner .. . liable.
The rationale for piercing the corporate veil is that the
corporation is something less than a bona fide independ-
ent entity.’” Northeastern Pharmaceutical, 810 F.2d at
744 (quoting Donsco, Inc. v. Casper Corp., 587 F.2d 602,
606 (3d Cir. 1978)) (emphasis added). Upon analysis
of the factors relevant to piercing Stamina Mills’ veil,
and mindful of the liberal construction CERCLA must
be afforded so as not to frustrate probable legislative
intent, the Court concludes that Kayser-Roth is an owner
for CERCLA’s purposes.

An analysis of piercing Stamina Mills’ veil to hold
Kayser-Roth liable begins with the general proposition
that a corporate entity may be disregarded in the inter-
est of public convenience, fairness and equity. As the
First Circuit has stated:

. . . [FJederal courts will look closely at the pur-
pose of the federal statute to determine whether the
statute places importance on the corporate form

. an inquiry that usually gives less respect to
the ‘corporate form than does the strict common law
alter ego doctrine. .. .

Alman v. Danin, 801 F.2d 1, 3 (1st Cir. 1986) (quoting
Town of Brookline v. Gorsuch, 567 F.2d 215, 221 (1st
Cir. 1981) ).

24a

CERCLA’s language attempts to address nationwide
public health and. environmental problems. In fashioning
a remedial framework by which some of these problems
could be resolved, Congress had two basic purposes in
mind:

First, Congress intended that the federal govern-
ment be immediately given the tools necessary for
a prompt and effective response to the problems of
national magnitude resulting from hazardous waste
disposal. Second, Congress intended that those re-
sponsible for problems caused by the disposal of
chemical poisons bear the costs and responsibility
for remedying the harmful conditions they created.

Dedham Water Co. v. Cumberland Farms Dairy, Inc.,
805 F.2d 1074, 1081 (1st Cir: 1986) (quoting United
States v. Reilly Tar & Chemical Corp., 546 F. Supp.
1100 (D: Minn. 1982)). CERCLA’s provisions should
thus be viewed: expansively, so as not to frustrate these
“beneficial legislative purposes.”’* Id.; Shore Realty, 759
F.2d at 1045. It is against this backdrop that it is con-
cluded that CERCLA places no special importance upon
the corporate structure. See United States v. Mottolo,
695 F. Supp. 615, 624 (D.N.H. 1988).

Kayser-Roth has exhibited overwhelming pervasive
control over Stamina Mills. Many of the same factors
used in holding Kayser-Roth liable as an operator are
relevant. Kayser-Roth’s control over environmental] mat-
ters; its policy of approving all capital expenditures of
greater than $5,000; its stranglehold on income and ex-
penses; its practice of placing Kayser-Roth personnel in
Stamina Mills’ director positions, thereby precluding
other Stamina Mills executives from significant daily

©The Dedham Water court further stated that “‘[Wle will not
interpret section 9607(a) in any way that apparently frustrates
the statute’s goals, in the absence of a specific congressional intent
otherwise.’” Dedham Water, 805 F.2d at 1081 (quoting New York
v. Shore Realty, 759 F.2d 1032, 1045 (2d Cir. 1985)).

decision-making; and its overwhelming ‘control ‘over
Stamina Mills’ financial and operational structure add
flesh to the skeletal proposition that Kayser-Roth’s .cor-
porate existence should be disregarded.’ Accordingly,
Stamina Mills’ veil should ‘be pierced to hold Kayser-Roth
liable, not only because public convenience, fairness, and
equity dictate such a result, but also due to ‘the all en-
cympassing control which Kayser-Roth had over Stamina
Mills as, in fact and deed, an owner. Any other result
would provide tco much solace to deliberate polluters,
who would use this device as an escape.

Causation

Kayser-Roth contends that even if it is liable for
Stamina Mills’ release of TCE, that release did not con-
taminate the Forestdale wells. Absent a causal connec-
tion between Stamina Mills’ release and the Forestdale
wells contamination, Kayser-Roth asserts it bears no
responsibility for the off-site response costs. While there
might be some doubt if the 1969 spill were the only re
lease, it ignores the credible evidence of TCE being con-
tinually dumped on Stamina Mills’ property. In the be-
ginning, there were inordinately high concentrations of
TCE on the Stamina Mills’ property. There was ample
evidenee to support the fact that onee dumped on
. Stamina Mills’ property the TCE migrated to the Forest-
dale wells. A hydrogeological study established a hy-
draulic connection between the Stamina Mills site and
the residential wells. The relationship between the con-
centration on the Stamina Mills’ property and the plume
overspreading the residestial area clearly established
that the Stamina Mills property is a source of pollution.
See 42 U.S.C. §9607(a). Thus, the releases from the
Stamina Mills site were the cause of both the on-site and
off-site response costs.

7 One version of the “Golden Rule” is that he who has the Gold
rules. The circumstances comport completely with this version of
the “Golden Rule.”

26a

Kayser-Roth also argues that other sources were re-
sponsible for the contamination of the residential wells.
Specifically, Kayser-Roth accuses Amperex, a southern
neighbor, of contributing to the pollution. This argu-
ment, however, ignores CERCLA’s joint and several
liability scheme. .““[D]amages should be apportioned only
if the defendant can demonstrate the harm is divisible.”
O’Neil v. Picillo, No. 88-1551, slip op. at 5-6 (1st Cir.
Aug. 21, 1989). Kayser-Roth did not introduce any evi-
dence concerning the divisibility of the TCE contamina-

s tion. Indeed, on this record it is sheer speculation to sug-
gest that there was any other source of TCE. There was
evidence that Amprex used TCE but no evidence that its
TCE migrated under the Branch River to the Stamina
site or the Forestdale wells. In the absence of that evi-
dence Kayser-Roth is itself liable for all on-site and off-
site damages the Government has proven.

Damages :

The parties stipulated to certain custs the Government
incurred in a document titled “First Joint Stipulation
As To Costs.” Specifically, the parties agreed that costs
incurred by the EPA totalling $660,612.71 were “ ‘costs
of removal or remedial action’ within the meaning of 42
U.S.C. § 9607(a).” First Joint Stipulation As To Costs
1-2. Moreover, it was stipulated that costs incurred by
the Department of Justice totalling $185,879.62 were also
‘costs of removal or remedial action’ within the mean-
ing of 42 U.S.C. § 9607(a).” Id. at 2. The total costs
the Government incurred and paid as a result of the
release was therefore $846,492.33. As noted earlier, the
record fails to reflect any distinction between on-site and
off-site costs. Because Kayser-Roth is liable for both
on-site and off-site costs, the distinction is immaterial.

Accordingly, Kayser-Roth is found liable for $846,-
492.33. In addition, the United States is entitled to re-
cover interest from the later of the date of the written

27a

demand for payment of a sum certain or the date of a
particular expenditure. 42 U.S.C. § 9607(a). Finally,
the Government shall within 10 days prepare and pre-
sent a form of declaratory judgment holding Kayser-
Roth liable for future response costs related to on-site
and off-site clean-up. Id. at § 9613(g) (2).

SO ORDERED.

/s/ Francis J. Boyle
FRANCIS J. BOYLE
Chief Judge
United States District Court
District of Rhode Island

October 11, 1989.

28a
APPENDIX C

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND

C.A. No. 88-0325-B
UNITED STATES OF AMERICA. .
Vv.

KAYSER-ROTH CORPORATION and
HyYDRO-MANUFACTURING, INC.

DECLARATORY JUDGMENT

This matter, which was initiated under Section 107
of the Comprehensive Environmental Response Compen-
sation and Liability Act, as amended (“CERCLA”), 42
U.S.C. § 9607, was tried to the Court on July 17-21,
1989. The Court issued its Opinion and Order finding
defendant Kayser-Roth Corporation to be an owner and
operator of the Stamina Mills Site within the meaning
of 42 U.S.C. § 9607(a) (2), on October 11, 1989. As
part of that Opinion and Order, the Court found Kayser-
Roth liable to the United States for $846,492.33 in past
response costs incurred by the government related to the
Stamina Mills Site, plus pre-judgment interest on that
amount. Order at 27, 28. The Court also found Kayser-
Roth liable for response costs related to future on-site
and off-site cleanup. Order at 28; 42 U.S.C. § 9613
(g) (2).

ACCORDINGLY, IT IS HEREBY ORDERED AND
ADJUDGED, that the United States recover of defend-

‘29a

ant Kayser-Roth Corporation the sum of $846,492.33,
with interest thereon at the rate provided in 42 U.S.C.
§ 9607(a), and 26 U.S.C. § 9501 et seq., in the amount
of $11,927.76, totalling $958,420.09.

IT IS FURTHER ORDERED AND ADJUDGED,
that defendant Kayser-Roth Corporation is liable to the
United States, pursuant to 42 U.S.C. § 9607 (a) (2),
for all further response costs incurred by the United
States related to the Stamina Mills Site, which costs are
not inconsistent with the National Contingency Plan
(40 C.F.R. Part 300).

Entered this 18th day of January, 1990.
By Order,
/s/ Loriaine Kizior
Clerk
ENTER:

/s/ Francis J. Boyle
FRANCIS J. BOYLE
Chief Judge

80as"
i APPENDIX'D®

UNFTED STATES COURT OF APPEALS |
FOR THE FIRST CIRCUIT

No.. 90-1190 .

UNITED STATES:OF AMERICA,
PLAINTIFF, APPELLEE .

Vv...

KAYSER-ROTH CORPORATION, INC.,
DEFENDANT, APPELLANT

ORDER OF COURT
Entered August 24, 199%”

The petition for rehearing is denied.

Kayser continues to argue that liability under CER-
CLA should be hased on fault. It stresses the acci-
dental or uniztentionai nature of the spill (Petition for
Rehearing at, 1, 2, 3, 5) and the “fact” that Kayser
did not commit a “wrongful” act (Petition for Rehear-
ing at 3, 5). lt urges us to adopt a standard of operator
liability based on wrongful disposal.

Kayser completely misunderstands CERCLA. Under
the statute, if a peyson is an operator (Kayser was and
we so held), that person is liable for the clean-up costs
associated with any disposal of hazardous waste. It is
completely irrelevant that the disposal was an accident;
CERCLA is a strict liability statute.

S8la

Kayser takes issue avithidontmote 2 of the panel opin-
ion. Although the footnote might be a little cryptic, it
is correct-andshoulld remain. “In‘diseussing the footnote,
Kayser illustrates its misunderstanding of CERCLA by
conceding that there was “disposal” on the site. That
concession is fatal to Kayser because Kayser, as an
operator, is liable if:ithereowas disposal. (Under 42
U.S.C. § 9607 (2) “any person who at the time of dis-
posal of any hazardous substance owned or operated any
facility ...” is liable.)

’ By the Court:

/s/ Franeis P: Scigliano
Clerk |

1 The footnote was responding to a slightly more sophisticated
(but still wrong) argument that “disposal” does not include acci-
dental spills.

32a
APPENDIX E

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 90-1190

UNITED STATES OF AMERICA,
PLAINTIFF, APPELLEE

Vv.

KAYSER-ROTH CORPORATION, INC.,
DEFENDANT, APPELLANT

Before Breyer, Chief Judge, Campbell, Torruella, Selya
and Cyr,*, Circuit Judges.

ORDER OF COURT
Entered: September 7, 1990

The panel of judges that rendered the decis »n in this
case having denied the petition for rehearing and the
suggestion for the holding of a rehearing en banc having
been carefully considered by the judges of the Court in
regular active service and a majority of said judges not
‘having voted to order that the appeal be heard or re-
heard by the Court en banc,

It is ordered that the petition for rehearing en banc
be denied.
By the Court:

/s/ Francis P. Scigliano
Clerk

* Circuit Judge David H. Souter did not participate.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_3145%3A1. Public record. Not legal advice.